Book Review: The little book that makes you rich by Louis Navellier

An excellent book in my opinion and is of the quality i don’t see very often. I actually have another one of the little books i am in the process of reading and i have liked both of them so far.

The author is a very successful financial analyst and is self-proclaimed geek, who believes in “numbers” in determining the stock values, more than the emotional attachment version, market swaying or any other sentimental version of it. The authors lets the numbers do the talking when it comes to picking stocks and apparently, was saved from several financial disasters, because of this approach.

The author very clearly defined the eight fundamentals by which he determines if the stock is a buy, hold or sell and shares with us his success-formula that has spanned decades. The chapters were very precise in their explanation and although they could have been written a tad more english-like for beginners, were included with examples, wherever it made sense. Despite the fact that the book is focused around growth-investing, i would strongly recommend it to all types of investors.

I really liked the operating margin concept explanation as i had not read it anywhere in other books. I would also like to point it that i have never seen books that explain when to sell stocks like this one did. The book is supplemented by the site : http://www.getrichwithgrowth.com which lives all these concepts the author is discussing in the book. The site has a portfolio grader that is available free of charge to anyone interested and is a top-notch for which other newsletters would probably charge me a fortune.

This kind of knowledge sharing is visible in intellectuals and other very successful people in all aspects of life and i think the author, if not already there, will soon be included amongst them[Hats off!]. And after all this heavy analysis of stocks, the author stays humble by realizing us that these numbers will get us far enough in identifying the right stocks.The individual portfolio will still be a mix of careful allocations [60 – conservative companies /30 – moderatively aggressive /10 – aggressive companies in authors case] and will vary for each investor.

My notes from this book:

1) earnings revisions – consistent and not erratic.

2) earning surprises – companies with earning surprises do well in future.

3) sales growth – 20% per year is a good criteria.

4) Operating margin = operating income/ net sales. Watch out for the companies with explosive sales growth but poor operating margins [i.e. under utilization of the resources actually and it could be a great indicator if the company has to consistently spend in new things to stay profitable. e.g. Intel ]. Note: Margins can spike if the low-sale stores are closed. watch out.

e.g. your paycheck = after 401k, SS, taxes is operating earnings. After you pay rent, food, utilities etc, what is left is cash flow. look into PW Eagle Inc, pvc pipe company and Holly corporation, which had explosive free cash flow in 07.

12) search criteria : a) only stocks that trade 5000 shares a day and has been trading for at least 52 weeks will remove any illiquid stocks or IPOs.b) earning surprises of over 5% but in the last two quarters, c) sales growth of 20% per yr d) earnings growth of 20% per yrs led author into 30 stocks. try it.